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BusinessDay

FMCG firms’ input costs surge 25% in 6 months

FMCG operator stakes N100m prize for consumer campaign

The production cost of manufacturing companies, especially the Fast-Moving Consumer Goods (FMCG), has risen by 25.3 percent to N746.6 billion in the first six months (January-June) in 2022 from N595.4 in the same period of 2021, a BusinessDay analysis shows.

A breakdown of the analysis from the 2022 half-year financial results of some listed FMCGs shows that year-on-year, the cost of sales for BUA foods, Cadbury, Dangote sugar refinery, Guiness Nigeria Plc, Nestle, Nigerian breweries and Unilever rose by 16.1 percent, 35 percent, 42 percent, 17 percent, 35 percent, 18.2 percent and 22.3 percent respectively.

“Industry players continued to face higher costs of operation arising from increased input costs given the depreciation of the naira, FX liquidity constraints, and structural rigidities,” a recent consumer goods report by Cordros Securities stated.

It also added that the blend of these factors dented consumer purchasing power and increased price sensitivity.

For the past six years, Africa’s biggest economy has witnessed two recessions owing to the collapse of oil prices and disruptions caused by the COVID-19 pandemic.

The contractions have weakened consumers’ purchasing power, caused job losses, eventually throwing millions into poverty.

Post pandemic, these challenges have intensified following the cut in the supply of raw materials globally causing scarcity of raw materials and consequently a hike in prices.

According to the National Bureau of Statistics (NBS), the country’s headline inflation sustained its upward movement as it rose to 19.64 percent in July 2022, the highest since October 2005 compared with 17.38 percent in July 2021.

Food inflation also rose to a 14-month high by 22.02 percent from 20.6 percent in June.

Read also: Consumers spent more on milk, egg, bread in July

Before the pandemic, high inflationary pressures, low incomes, and weak purchasing power led to companies repacking their products into smaller sachets at affordable prices.

“As consumers continue downtrading from premium brands to cheaper and unbranded products, the bigger players in the consumer sector have responded by repackaging their products into smaller, affordable product units (sachets) to meet the demands of low-end consumers,” analysts at Cordros Securities said.

Apart from smaller packages, most manufacturers have either increased their retail price without a corresponding increase in value or increased price, while maintaining the same value or reduced one.

This development has led to consumers complaining about their products.

For example, a 70g of Superbite sausage roll which was sold for N50 was reduced to 60g but its price increased to N60, a 5ocl Coca-Cola drink increased from N100 to N200 without increasing the quantity and a loaf of bread increased from N250 to N700, still maintaining the same quantity.

Biola, a university student, told BusinessDay that the quality of the 50cl Coca-Cola drink has depreciated over the last year.

“I don’t enjoy the drink again because it tastes like water, I had to shift to other alternatives like Pepsi because it is still a bit better than Coca-Cola.”

Ayorinde Akinloye, a consumer analyst at United Capital plc noted that most FMCGs are stuck between maintaining product quality and increasing the price of their product.

“At the moment, they are doing the best possible they can in terms of bringing the balance between quality and cost.

“So, the only thing they need to improve on is to see how they can manage the number of materials they can put in these products so that they can still improve the quality,” Akinloye said.

Jide Babatope, a Lagos-based analyst also added that FMCGs could cut rising costs by intensifying their efforts towards local input sourcing.

“This seems to be more cost-effective than importing from abroad. But this is even a question of how many sub-sectors in the FMCGs space have their inputs readily available in the local markets,” Babatope said